Home Financing Ninja

The Great Debate: Discounting Commission and Building a Niche - Plant City, Florida

I don't normally get involved in debates and politics and religion.  But after seeing a fellow industry professional talk about whether discounting your commission to get the sale, I had to write my own article.  While the author was only asking questions and opinions, it was a lot of the opinions that caused me to want to pull out my soap box today.

First - Give credit where it is due: Thanks to today's (yesterday) featured article Amanda Simpson, Fayetteville, NC. Her (members only) article featured yesterday on AR about "Does Discount Your Commission Discount Your Percieved Value?" was well written, (I thought).  She gives great background information and even offered a great rebuttal in the opening paragraph.  Although, for the this writer's mind, there were one or two unanswered questions that made me wonder if I am comparing apples to apples, or am I comparing apples to bananas

Anyways, on with my thoughts for the rest of the community

Firstly, the model of discounting commission is not for everyone.  Just like I am not going to work well with 100% of the realtors, this idea is not going to work in every realtor business plan. I personally think that this is a great idea and business plan if deployed correctly.  It helps with:

• Niche Building
• Brand Awareness
• Business to Business Building
• Business to Consumers
• Geographically Sensitivity (Hyper Local Dominance)
• More Deals = = = More Money

Let's Define Discounting Commission: I am NOT suggesting that a realtor discount a whole percent of the 6% realtor commission.  This business model does not work that way.  While I know of other realtors who have dominated their local markets in Atlanta and Charlotte by offering 1/2 of 1% and $500 to list a home - They are simply doing like most realtors, Playing the Numbers, (The more homes you list in MLS, the more likely a chance of one selling). No this will not work for that kind of agent.  One top of which you tend to not work for your clients

Active Rain Referral Network: Have you checked this out recently.  Everyone is willing to take or offer an amount for handling clients both near and far away.  The norm being 25%.  In fact as I write this, the most recent referral was in Berkeley Springs, WV and wants 20% commission.  There are many agents that will land a deal and pass it off to another agent for a referral commission.  Isn't this the same idea?

Which is better - 17 or 25%.  My agents are required to give 17% of their commission (whatever it may be,       1 - 6%) to the client (buying or selling) in the form of either cash or closing cost credit.  This is the same idea of offering a Free iPad at closing when you find Homes For Sale in Plant City, Florida and you use my team to help you get it (note: these are not able to be used at the same transaction)

Let's do the Math:

The Typical Scenario
Agent gets from Broker 127,400 lead and requests 25% referral fee
$127,400 x 3% = 3822
25% Referral fee to Broker = $955
Money to Agent = $2867

The Change-Up
Agent get referral from the community, $127,400
$127,400 x 3% = 3822
17% Referral fee paid to client = $650 (rounded)
Money to Agent = $3172

Realtors are willing to give up 25% of their commission to work with another agent, but not 17% when the same person comes to the agent from niche marketing, such as a neighborhood, city, work place (such as your largest employer in your town), the military, or from cross marketing with certain industry segments, like an attorney. 

A realtor cannot just offer ONE thing (commission reduction) to make the idea work - there has to be more (like coupons from local business, discounted home services like a plumber or maid service, discounted professional service - if allowed by that industry such as a Financial Planner, attorney, etc). A list of homes for sale in the area is a must.   These areas are where I think many miss the boat.  See my additional followups to be posted Monday and Tuesday on How to do this and WHY is it important

REPSA Compliance:  A realtor, loan person, anyone can give ANYTHING to their client.  It is just that (as we know) we cannot give that money to a cross industry professional (mortgage to insurance, insurance to realtor, realtor to mortgage, etc) - So the answer is, yes this is RESPA Compliant

Let me ask it this way -

Would you as a realtor or loan officer being willing to give up 17% of your commission if your local insurance agent (or CPA, or divorce attorney, or Financial Planner or Title Company) that you do business with came to you with their entire database for you to market to?

In part two, I will show you how I use this to build a database using this niche concept

In part three, I will show you other working parts you need to have when creating similar model

I would love to hear what people think, so please sound off below.  Maybe you will come up with something that I never consider.

Come meet me live at the Video Marketing Roundup in Dallas.  December 10th to 12th and learn how to use video marketing to capture, enhance and dominant your niche marketing and explode your database